Eight-month delay costs employer its right to arbitrate former VP’s claims

By Marjorie Johnson, J.D.
An employer waived its right to arbitrate a former VP’s breach of contract and wrongful termination claims since it knew of its right to arbitrate, acted inconsistently with the right, and prejudiced the employee by its failure even to mention arbitration despite multiple opportunities to do so, the Eighth Circuit ruled in affirming the district court’s denial of its motion to compel arbitration. During the eight months of litigation preceding its bid for arbitration, the employer transferred the lawsuit from state to federal court, filed an answer with 24 affirmative defenses, agreed to a discovery schedule and trial date, and moved to transfer to a different federal court (Messina v. North Central Distributing, Inc. dba Yosemite Home Decor, May 10, 2016, Murphy, D.).
Active litigation. The employee signed a two-year employment contract and separate arbitration agreement when he was hired as the VP of Sales for Yosemite Home Décor. After he was discharged about six months later, he brought the instant action in state court on July 1, 2014. Yosemite removed the case to federal court in the District of Minnesota in August and subsequently filed an answer raising 24 affirmative defenses. The parties also filed a joint Rule 26(f) report in November which included a discovery and motion schedule, stipulated that they would be ready for trial in August 2015, and stated that they had discussed alternative dispute resolution and recommended mediation.
On November 26, Yosemite moved to transfer venue to the Eastern District of California where its headquarters were located. It argued that convenience of the parties and witnesses and the location of evidence favored a transfer, but did not mention arbitration. The employee’s response in opposition included several affidavits and identified a list of witnesses who might testify on his behalf. At a scheduling conference on December 2, Yosemite again failed to mention arbitration. The district court denied the motion to transfer on January 27, 2015.
Shortly thereafter, on February 10, Yosemite's attorney contacted the employee’s counsel and for the first time and asked to stipulate to arbitration. The employee’s attorney served discovery on Yosemite on February 19 and a response rejecting its request to stipulate to arbitration the following day. One month later, on March 13 (more than eight months after the lawsuit was filed), Yosemite moved to compel arbitration. The district court denied the motion, finding that the company had waived its right to arbitrate since it knew of its existing right to arbitration and had prejudiced the employee by acting inconsistently with that right. The Eighth Circuit agreed.
Eight months of inconsistent actions. The Eighth Circuit explained that a party waives its right to arbitration if it knew of an existing right to arbitration, acted inconsistently with that right, and prejudiced the other party by these inconsistent acts. Here, Yosemite knew of its existing right because it possessed the arbitration agreement. Second, it acted inconsistently with its right to arbitrate by proceeding in court for more than eight months before asserting that right. It "substantially invoke[d] the litigation machinery," by removing the case to federal court, filing an answer, participating in a pretrial hearing, filing a scheduling report that recommended a trial date and discovery deadlines, and filing a motion to transfer venue.
It also failed to "do all it could reasonably have been expected to do" to raise its right at the earliest feasible time. For instance, it failed to mention the arbitration agreement in its answer listing 24 other affirmative defenses, in the joint Rule 26(f) report, at the pretrial scheduling conference, or in its motion to transfer venue. It had several opportunities to seek arbitration after the employee put it on notice of his claims but let each of those opportunities pass.
Moreover, before filing its motion to compel, it consistently indicated that it was prepared to take the case to trial in federal court and never indicated otherwise. For example, it recommended that the district court set a trial date on or after August 1, 2015, and argued that it would be a hardship to litigate the case in Minnesota as opposed to California. Indeed, it only moved to compel arbitration after it lost the motion to transfer venue, suggesting that it "wanted to play heads I win, tails you lose."
"Considerable time and thousands of dollars." Finally, Yosemite's inconsistent actions and eight-month delay caused the employee prejudice because he spent considerable time and money obtaining new counsel, partaking in pretrial hearings, and responding to the transfer motion. For instance, he was forced to defend against its motion to transfer venue, which included compiling affidavits and a list of witnesses. He also served discovery on the company after the parties agreed to a discovery schedule.
He thus spent "considerable time and thousands of dollars" on the lawsuit to date, including obtaining new counsel. Further, granting Yosemite's belated motion to compel arbitration would likely cause him to duplicate his efforts to keep the case in Minnesota, which Yosemite would presumably seek to arbitrate in California. The district court thus did not err in finding that Yosemite's actions prejudiced the employee.

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